Non-constant growth: Starskeep Ltd is a fast growing technology company. The company projects a rapid growth of 40 percent for the next two years and then a growth rate of 20 percent for the following two years. After that, the company expects a constant-growth rate of 8 percent. The company expects to pay its first dividend of $1.25 a year from now. If your required rate of return on such shares is 20 percent, what is the current price of the share?
A) $15.63
B) $4.70
C) $30.30
D) $22.68

Question

Quizplus · Accepted Answer

The correct answer is A because the current price of the share is $15.63. This is calculated using the dividend discount model, which takes into account the company's expected dividends and growth rates.

Non-Constant Growth: Starskeep Ltd Is a Fast Growing Technology Company